Oil at 17-year low but fresh excise hike may hold fuel prices

The companies are expected to reduce domestic LPG rates on Tuesday by about 10-15%, passing some of the relief from falling international prices of the fuel to consumers when demand is rising as families remain confined to their homes.

International benchmark Brent — which makes up about a quarter of India’s oil purchase — dropped to $23 per barrel, a level last seen in November 2002. NEW DELHI: Crude oil prices plunged to their lowest in 17 years on Monday but state-run fuel retailers continued to hold fuel prices, creating headroom for the government to raise excise duty to mop up funds without impacting consumers.

But the companies are expected to reduce domestic LPG rates on Tuesday by about 10-15%, passing some of the relief from falling international prices of the fuel to consumers when demand is rising as families remain confined to their homes.

International benchmark Brent — which makes up about a quarter of India’s oil purchase — dropped to $23 per barrel, a level last seen in November 2002. Crude appears to be searching for a bottom — $20 or below as projected by investment bankers — as Saudi Arabia and Russia keep flooding the market, while demand shrinks due to the economic impact of coronavirus pandemic.

Sanjiv Singh, chairman of India’s largest refiner-fuel retailer IndianOil, said it would be “unrealistic” to tune pump prices to international product prices, which were $3-4/barrel lower than crude. Fuel prices are set according to their global rates and rupee-dollar exchange rates.

“Crude and products have separate dynamics. Currently crude is falling because of flooding (by Saudi Arabia and Russia) but products are guided by sharp fall in demand due to the coronavirus impact. Fuel prices are at a comfortable level. It will not be right to move (pump prices) them according to unrealistic global prices because if the government raises excise — rightly so at this time — then fuel prices will have to be raised also,” Singh said.

Excise duty was raised by Rs 3 on March 14 to soak up the benefit from Brent’s 24% fall to $30/barrel. But fuel prices did not increase.

Subsequently the retailers kept adjusting it against the fall in crude. Soon after the last round of excise duty hike, the government took authorisation from Parliament to raise excise duty on petrol and diesel by Rs 8 per litre each in future.

The BJP-led government had between November 2014 and January 2016 raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices. In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped the government's excise mop-up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.

Read also

Excise duty cut excise duty by Rs 2 in October 2017 and by Rs 1.50 a year later. But, it raised excise duty by Rs 2 per litre in July 2019.

In Delhi, petrol is priced at Rs 69.59 per litre while in Mumbai it comes for Rs 75.30. Diesel is priced at Rs 62.29 per litre in Delhi and Rs 65.21 in Mumbai.

After the March 14 increase in taxes, the total incidence of excise duty on petrol has risen to Rs 22.98 per litre and that on diesel to Rs 18.83. The tax on petrol was Rs 9.48 per litre when the Modi government took office in 2014 and that on diesel was Rs 3.56 a litre.

Sponsored Stories

Subscribe to our Newsletters

In order to exhibit the model stretches of national highways as per norms, NHAI plans to develop 57 stretches of NH (1,735 kms) across the length and breadth of the country near each state capital, the NHAI official said. These model stretches will serve as a platform to instruct the highway engineers.